The Questor column

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Image 1 of 2

Edited by Dominic White

12:11AM BST 03 Jul 2003

The Questor column

Edited by Dominic White

(Filed: 03/07/2003)

BP slick enough to ensure bonuses

Britain's biggest company, BP, wasn't in much of a mood for disclosure yesterday, but then why should it be. Its trading update offered shareholders a checklist of average prices and margins the oil group had achieved over the second quarter, but nothing about how much of the black stuff BP had actually produced during the quarter.

Analysts are tipping production volumes to be lower in the full quarterly figures, which will be reported on July 29, but the handsome bonuses of BP's management are in little danger. Prices and margins will be strong enough to ensure the company reports an increase in net clean income of about 30pc.

After shooting to record levels earlier this year in the lead-up to the Iraq war, oil and gas markets have held up nicely for all producers. Delays in getting the Iraqi oil wells on-stream again, as well as ongoing problems in Nigeria, have kept supply constrained.

However, these are incidents beyond even the control of BP's slick management, and oil prices can be frightfully volatile. BP's fortunes, outside of the oil price, are drilled firmly into in its new foray into Russia.

Chief executive Lord Browne has managed to get a finalised draft agreement with his new partners at Sidanco, but as the deal has not completed yet, none of the devilish details are yet available.

Lord Browne has been promising to reveal all at a briefing later this year, most likely in August or September. Most large investors appear content to keep their powder dry until BP is ready to start revealing more detail.

BP has produced solid growth for several years with progressive dividend hikes, neither of which appear in danger. But trading on around 16 times its forecast 2003 earnings, and yielding 3.8pc, it is not offering outstanding value to investors at the moment.

Major rival Shell is trading at a small discount to BP, and boasts a similar growth profile. If black gold is your passion, it might be a better option right now.

Build up the cash pile

You could be forgiven for mistaking Bovis for Hovis. Both brands like to advertise their wholesome qualities, ensuring people the warmest, most comfortable homestead.

In the case of Hovis it's the food on the table, but for Bovis Homes it's the very bricks and mortar. Yesterday the housebuilder proudly flagged up two new developments launched for its Retirement Living division in its trading update.

It all sounded soft and cosy, but coming amid a clutch of upbeat trading statements from rival diggers, Bovis rather let the side down on the hard figures front.

The group warned that legal completions in the first half of 2003 were flat on 2001 and lower than last year. The market didn't like it very much and the shares dipped 3 to 421.5p.

Admittedly, Bovis's average sales prices and margins increased above targets and comparable levels in 2002. However, investors have been a bit spoilt with the show home-style figures of rivals.

Bovis, seeking to compete, said it is busy beavering away with more building and is concentrating on margins, return on capital employed, long-term investment and cash generation.

It also said the market has "returned to a more normal level of activity" - whatever that is - after the difficulties experienced in the second half of the year, which was adversely affected by the war in Iraq.

There was no real profit warning yesterday, but the shares, which have jumped 23pc since February, do not look attractive in the short term. They are trading at a similar level to rivals - on six times prospective earnings and offering a forward yield of around 3.6pc.

If you were lucky enough to have got in the front door at the 344p low in February, it's now time to sneak out the back and take some profits.

Park up the white van

White Van Man, regular star of an opinion column in a certain tabloid newspaper, is having a hard time of it at the moment, what with the economic downturn and all.

There's even a chance that he will sell his vehicle and hire one from Northgate instead. The company, which buys vans, trucks or cars, rents them out to small-to-medium sized businesses and sells them on, is Britain's biggest van hire operator with a fleet of 45,000.

It's proved to be a simple but sound business, as no matter what state the world economy is in, companies always need White Van Man on hand to move their goods.

Indeed, it is the lean times when Northgate's business tends to pick up, because most companies try to get as many assets off their balance sheets as possible. Hiring a white van at Northgate instead of owning one is one way of going about it.

The company has seen steady growth over the past 10 years and yesterday was no exception when it announced a 15.5pc jump in pre-tax profits to £36.6m for the full-year. Turnover rose 21.6pc to £337.9m.

Although the stock fell 4pc to 502.5p, the shares have had a good run, and are trading at 11 times earnings, while yielding 3.4pc. They are now near five-year highs, having outperformed the sector by around 12pc this year as more small companies decide to hire commercial vehicles instead of owning them.

But a note of caution about Northgate's falling operating margins. Adding 26 new depots to its UK network in the last two years has squeezed them.

Yesterday, chairman Michael Warring launched an ambitious three-year expansion plan that could squeeze them further - he aims to have a fleet of 60,000 vehicles in the UK and 18,000 at Northgate's Spanish market in place by the year 2006. Stay away if you're out to make a quick buck.